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Appeals court rubber stamps FCC's DSL (de)regulation

Hangs up on small ISPs

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Living in America? If you get your access to the internet through an independent ISP over DSL, your service might become more expensive soon. Or slow. Or disappear entirely.

The Court of Appeals for the Third Circuit issued a ruling last week that approved the FCC's new order eliminating the requirement that large phone companies provide transmission services to independent ISPs at set, nondiscriminatory rates.

Instead, the independent ISPs will have to negotiate new individual contracts with Big Telco to use their pipes. But nothing guarantees that the telecoms will even agree to play ball with the little guys anymore.

Prior to this new order, the FCC required providers of "enhanced services" related to data storage, generation, transmission, etc. to provide competitors access to their wirelines. Access to telecommunications services (e.g., voice and fax) is mandatory under the Communications Act, but access for these enhanced services came through a separate FCC regulation issued back in 1975.

Cable ISPs did not fall under the 1975 rule, according to an FCC interpretation that was later upheld by the Supreme Court.

Access to grind

The new DSL order does two things: First, it declares that broadband Internet services over DSL are "information services" (a term introduced by the Telecommunications Act of 1996, but basically analogous to "enhanced services") with no telecommunications component. Thus, the mandatory access provisions of the Communications Act don't apply.

Next, the order eliminates the 1975 rule that required information service providers to give competitors access to their transmission systems. This opens the door for the large telecoms to hike up the rates that smaller ISPs pay to access the telecom's facilities, and it could also allow the telecoms to reject access for small ISPs altogether.

After the FCC issued the order, a number of independent ISPs and trade organizations petitioned the court for a review of the new deregulation.

In reviewing the regulation, the court's hands were largely tied by the legal standard that applies to administrative decisions. The court could only overturn the new order if it found that the FCC had acted in an arbitrary and capricious fashion when drafting it.

This is a highly deferential standard, and courts will usually only reject regulations if they find that an agency performed the equivalent of picking a rule out of a hat. If the agency can justify an order, even if the justification is based on bad policy, then courts will uphold it.